A week before last Christmas, Pendragon chief executive Trevor Finn retired after 30 years in the driving seat. Keen for an orderly succession, Finn agreed to stay on at the car dealer for three months — which is exactly how long his successor lasted.
Will the disruption in the boardroom send Pendragon spinning off the road?
These are lean times on Britain’s forecourts: higher car financing costs and confusion over future tax policy on petrol, diesel and hybrid fuel contributed to a 4.1% drop in new car registrations in July, the fifth straight monthly decline.
So Pendragon, which owns the Evans Halshaw and Stratstone brands, is focusing on used cars with Car Store — a strategy Mark Herbert, Finn’s successor, did not agree with. Car Store has a glut of excess stock and is expected to lose £25m.
Pendragon does have some advantages that its competitors lack. It has a stable and profitable fleet leasing business and a growing software business, which licenses tech solutions to other auto retailers.
Last year it made underlying pre-tax profits of £47.8m on sales of £4.6bn. But Pendragon reported a pre-tax loss of £2.8m in the first quarter and the company warned investors it would report a significant interim loss next month, before returning to profitability in the second half. That could prove overly optimistic.
Car manufacturers are being forced to change the way they test for emissions to better reflect real-world driving habits, which could lead to bottlenecks in the supply chain as companies come to terms with changes — a risk flagged last month by Pendragon’s rival Lookers.
If manufacturers have fewer shiny new cars to send to forecourts, they may not end up in Britain, because a weak pound means a thinner margin for the manufacturer.
Then there is the growing risk of a disorderly Brexit battering the industry and dragging down consumer spending, plus a £240m debt refinancing looming for Pendragon in 2021.
Perhaps mindful of that, it is selling two car dealerships in California for £60m.
Investors could be forgiven for feeling a sense of déjà vu. In 2011, Pendragon shocked the market by announcing a 10p-a-share cash call to help reduce its debts, which then stood at £300m. The brave ones who backed it more than quadrupled their money over the next four years.
Pendragon is not yet at that point, and even with the share price near its lowest level for seven years — 11.2p, down by half since January and valuing the group at £157m — investors should steer well clear. Avoid.